Novus Holdings: To buy or not to buy?
Novus Holdings (previously known as Paarl Media Group) is one of the leading printing and manufacturing groups in Africa. Part of Media24*, Novus offers printing and t i ssue manufacturing services in an extensive range of formats, substrates, finishes and value added services. The group plans to list on the JSE on 31 March, trading under the ticker code NVS.
KEY TAKEAWAYS FOR INVESTORS FROM THE PRE-LISTING STATEMENT:
■ The business operates predominantly within South Africa and is increasingly targeting Africa as part of its growth strategy.
■ 94% of the group’s forecasted revenue depends on the sales of magazines, retail inserts, catalogues and books (see graphic). The company will focus on diversifying its product offerings by increasing its revenue in related industries, such as tissue manufacturing and specialised packaging.
■ Novus prints about 80% of all South African weekly and monthly magazine titles by volume, including titles such as Drum, YOU and Huisgenoot. It also prints about 40% of all South African newspapers measured by volume, including Sowetan, Daily Sun, Sunday Times, Rapport and City Press, and prints and delivers about 50m educational workbooks a year for 25 000 schools in the country.
■ Management intends to adopt a dividend cover of two times HEPS. Based on a forecasted HEPS of R1.23 and an assumed mid-point listing price of R13.22, Novus Holdings will be trading on a P/E ratio of 10.74 and an attrac- tive dividend yield of 4.65%. On a relative basis Novus Holdings appears to be offering more value than Caxton and CTP Publishers (Share Code: CAT), trading on a historic P/E multiple of 15.83 and dividend yield of 3.63% (see table).
The group’s strong cash generation (79.6% cash conversion ratio) should be maintained going for ward, due to increased capex spending in prior years. Its low debt levels will create an opportunity to enhance its capital structure through gearing benefits. High sta r t- up costs and Novus’s specialised skills create high barriers to entry in the printing business. Novus also has a strong management team that will continue to make accretive acquisition going forward.
RISKS TO THE COMPANY:
■ Rand weakness: a large percentage of the company’s input costs results from the import of paper, which is priced in foreign currency. The company will try to mitigate this risk by hedging its exposure and adjusting selling prices.
■ Political, social and economic conditions in emerging markets: risks relating to strike actions and South Africa’s inconsistent electricity supply could affect profit margins. This is expected to hurt GDP going forward. Novus will focus on expanding its business in other Sub-Saharan countries, where economic growth is more robust.
■ Digitisation will put further pressure on the printing industry.
We believe that Novus offers great value and we would recommend that investors accumulate Novus shares below R14 a share.
* Finweek is part of the Media24 stable and a client of Novus. **The opinions expressed in this article are the opinions of the writer and not necessarily those of PSG and do not constitute advice.